👓 ARGENTINA: NEW PRESIDENT NEW OPPORTUNITIES: DCDB Research

PEOPLE ARE TALKING ABOUT ARGENTINA’S NEW PRESIDENT FOR ALL THE RIGHT REASONS

Read part of DCDB latest report on Argentina’s change of direction.

Argentina: New President, New Opportunities Argentina’s new president-elect Mauricio Macri is set to usher in a new era after 12 years of leftist government. He takes power on 10 December, 2015. Markets expect that President Macri will settle a lawsuit with holdout creditors, return the country to international capital markets, and promote growth. Mauricio Macri is a businessman and politician who breaks with Argentina’s Peronist past. He is inheriting a broken economy from the previous administration, and has laid out plans to unify the currency, dismantle capital controls and import and export restrictions, and tackle corruption. The next six months will likely see increased volatility, with medium and long term growth to follow. DCDB Research has identified the following industry sectors as investment opportunities:

Agribusiness

Agribusinesses directly related to soy, other cereals, and cattle will be the first to benefit from Argentina’s new president. Bloomberg has estimated that the country’s farmers are currently ready to ship approximately US $8 billion in stored crops as soon as export taxes are lifted or reduced, which could be as soon as 10 December 2015. Annual exports of grains and oilseeds have fallen to US $17.6 billion this year so far, the lowest since 2009.

Although global prices for agricultural commodities remain weak, Argentina’s agriculture sector enjoys strong comparative advantages and has been systematically underinvested since the Kirchner administration began implementing export restrictions in 2006. Increasing export taxes on soy, wheat, and corn have caused famers to plant unregulated crops to avoid the taxes.

This season, farmers have planted 31 percent less wheat than the average in years preceding the taxes and the current crop being harvested may be the smallest in three years, which at 9.5 million metric tons is a 16 percent decrease from one year ago.

Argentina’s meat and dairy industry has suffered tremendously since the 2006 decision to nearly ban exports to control prices locally. In 2005, Argentina produced over 3.1 million tons of beef and exported 745,000 metric tons, making it the third largest beef exporting country in the world. Since then, production exports and internal consumption have all fallen. By 2012, Argentina beef exports had fallen to 11th place globally, exporting only 164,000 metric tons of meat and today remains behind neighboring landlocked Paraguay. With relaxed licensing barriers and investment, Argentina’s beef industry will again become a global leader

Mining & Resource Extraction

Global mineral and oil prices remain depressed with an uncertain outlook. Argentina is home to significant shale gas and oil fields in the Patagonia region known as Vaca Muerta. Exploration of the Vaca Muerta is unfeasible with oil prices below US $80 per barrel. The Vaca Muerta is under development via a joint venture between state-owned oil company YPF and US-based Chevron. When oil prices rebound, Vaca Muerta is an interesting and lucrative opportunity for Argentina.

Argentina is also part of the “lithium triangle” and is home to the second largest lithium reserves in the world. Experts expect lithium carbonate prices to increase up to 20 percent by 2020 in response to increased demand for energy storage solutions.

Banking & Finance

Argentina’s banks and financial institutions have been the victims three times over of the outgoing government’s currency controls. A modernization and formalization of the sector represents one of the biggest short to medium term opportunities in the country.

Firstly, a great deal of the country’s financial sector has been pushed into an informal economy that functions via cash and clandestine financial houses. Massive amounts of money go undeclared in an effort to evade foreign currency restrictions, and do not pass through banks or the formal system. A relaxation of restrictions and abolition of parallel exchange rates will shift transactions away from cash to electronic transactions.

Besides benefiting banks and financial institutions, this will create a tremendous opportunity to modernize the credit card processing and mobile payments sectors with both hardware and software.

Energy & Renewables

Argentina possesses an above-average electrification rate of 96 percent, and the 1.5 million rural inhabitants without access live in remote areas where extending the national grid is impractical.

Despite challenging conditions, energy demand has increased over 40 percent in the past decade and will need to grow to accommodate across the board economic growth. Analysts estimate that electric energy generation will require US $38 billion in the next decade, one third to be used for distribution and two thirds for generation. Updating and maintenance will require an additional US $50 billion. Argentina has sufficient national conditions for a strong solar and wind energy mix, and has already passed laws to promote these industries. It has established an 8 percent target for renewables in the energy matrix by 2017 and by 2020 the country has committed that renewable energy will form 20 percent of the energy matrix. By promoting the transformation of the present system to a sustainable system based on renewable energy and efficiency, Argentina can move closer to energy self sufficiency.

The Argentine Chamber of Industry estimates that the theoretical potential of wind power in the country is 2000 GW. Experts state that 70 percent of Argentina has an average wind speed of over 6 m/s, presenting ideal conditions for wind energy production. Patagonia has wind speeds between 9 and 12 m/s, and coastal regions and the Province of Buenos Aires have speeds higher than 6.5 m/s. Wind energy output rose from 16 GWh in 2011 to 613.3 GWh in 2014. The largest production facility is in Rawson, Chubut and produces 77 MW, and the second largest is in in Arauco, La Rioja.

Argentina also presents optimal solar power conditions. In the north west provinces of Salta, Jujuy, Catamarca, La Rioja, and San Juan solar radiations are above 5 kWh/m2. These regions are ideally suited for large-scale projects that could serve other industries such as mining that have difficulty accessing the grid. The largest solar PV projects are in the provinces of San Juan and San Luis.

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